The Pound Sterling’s exchange rate has steadied today after recovering from a 16-month low hit on Monday morning following a UK credit downgrade. The Pound Euro exchange rate (GBP/EUR) has received a brief reprieve after an inconclusive Italian election raised concerns of political gridlock in the Euro zone's third largest economy.

Fear is once again gripping European markets, it seems the insubordinate Italian nation could reject austerity and adopt a ‘wing it and pray’ approach which could scare invertors out of Italian debt and equities, this will drive up Italian debt and push them closer to needing European bailout funds. One the other side of the equation are the Euro bulls who would say the Euro zone have enough resources to keep Italy on track and things will blow over in the next few months.

The Euro has recently experienced a strong rally which also propelled it to a 15-month high against the Dollar early this month.

The Pound has also traded close to flat on the day against the Dollar, although it held well within sight of a 2-1/2 year low of $1.5073 (GBP/USD) hit on Monday after Moody's stripped the UK of its triple-A credit rating.

“Any gains the Pound Sterling has made could be short-lived given the bleak outlook for the UK economy, we see this as a good opportunity to buy the Dollar or Euro in preference to the Pound,” said a senior Forex trader today.

Weak UK fundamentals could easily catch up with the GBP later this week and erode demand for the currency yet again.

The Moody's credit downgrade has compounded pressure on the UK currency, which was already vulnerable after minutes of a BoE policy meeting showed officials, including Governor Mervyn King, are in favour of more monetary easing.

Many exchange rate experts have speculated that given the extent of recent falls they expected Sterling to rebound in coming days but that they will then be viewing these rallies as an opportunity to sell the Pound again and drive exchange rates down.

For a live currency converter or to compare exchange rates (including historical charts) please see the main Exchange Rates UK website.

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